Falling real estate could cost up to $4 trillion: report

NEW YORK (Reuters) - Real estate wealth is expected decline anywhere from $2 trillion to $4 trillion out of a previous valuation of roughly $21 trillion when the total costs of recent credit crunch are tallied, the New York Times reported on Thursday, citing economists.

And financial firms could face aggregate losses of some $400 billion from expanding troubles related to the subprime mortgage market fallout, the paper said.

That is higher than the roughly $240 billion in financial institution losses from the savings and loan crisis of the early 1990s, adjusted for inflation, the paper said.

The losses in real estate wealth, while large, are substantially less than what investors suffered in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent of market value, the paper said.

However, the recent declines are likely to have a significant impact on consumer spending, since owners will not be able to cash out as much equity from their property, the paper said.

It said the economists' loss estimates for both real estate and financial firms are preliminary and could get much higher.

The Joint Economic Committee of Congress, in a report to be issued today, predicts about two million foreclosures by the end of next year in homes purchased with subprime loans, the paper said.

That's much higher than the Bush Administration forecast in September of some 500,000 foreclosures, the paper said.